'Farmers Have Been Totally Cheated In This Budget'
Yesterday, the Finance Minister presented the budget for 2017-18. It was his, and his government's, fourth budget. I read through the 37-page, 184-paragraph budget speech and the 21-pages containing five appendices and an untitled section. It was a painful duty. At the end of the day, our conclusion is that the elaborate exercise has turned out to be a damp squib.
There are a few positives in the budget, and I am happy, and I shall refer to them in the course of my interaction with you after this opening statement. The most important positive is that the government seems chastened after the debacle of demonetisation and has not done anything reckless or disruptive. I compliment the Finance Minister on adopting a tone of moderation.
It is, however, obvious that demonetisation and its inevitable consequences have demoralized the government. Government has retreated from reforms. And the government has no answers to the severe challenges faced by the economy. Key sections of the people feel cheated and let down.
Firstly: The sections of the people most affected by demonetisation were the farmers, farm workers, manual labourers, the self-employed, artisans and micro, small and medium businesspersons. They lost crores of rupees in the form of wages, incomes and capital. There is absolutely nothing in the budget for these sections. We had demanded that the government offer them compensation in some form, but the government has cruelly neglected them.
Secondly: The acute distress in the farm sector. The government seems to be totally oblivious to the plight of the farming community. The best signal to the farmer is a remunerative price for his produce. The Finance Minister has not even uttered the phrase 'Minimum Support Price' in his speech. The farming community has been totally cheated by the budget.
Thirdly: Jobs. The most vocal demand of the people, especially the youth and their parents, is, Where are the jobs? The NDA promised to create 2 crore jobs every year. Their best result so far was 1.5 lakh jobs in 2015-16. There is absolutely nothing in the budget that points to a change of strategy to create new jobs.
Fourthly: Declining investment. Gross Fixed Capital Formation (GFCF) has declined since the NDA government assumed office. According to the Economic Survey, it was 4.9 per cent in 2014-15, 3.9 per cent in 2015-16 and has precipitously fallen to -0.2 per cent in 2016-17. There is absolutely nothing in the budget in terms of either new strategy or policy measures to revive private investment.
Fifthly: Reviving growth. It is now widely accepted that the growth rate of GDP has taken a hit due to the global situation, inadequate policy measures and the ill-conceived demonetisation. The Economic Survey resorted to a 'sleight of hand' when it claimed that there will be a reduction of 0.25 to 0.50 per cent 'relative to the baseline of estimate of about 7 per cent'. That's a convoluted way of saying that the growth rate will be 6.5 to 6.75 per cent against the forecast of 7.6 per cent at the beginning of 2016-17! Actually, it will be worse. It will be worse not only in 2016-17, but the period of lower growth will extend to 2017-18 and 2018-19. There is absolutely nothing in the budget that points to measures to revive flagging growth.
Sixthly: Boosting aggregate demand. The tried, tested and the best way to boost aggregate demand is to cut indirect taxes, especially excise duty and service tax, that is paid by every consumer of goods and services -- poor, middle class and rich. Such a cut would have also given immediate relief to crores of people. Government has foolishly rejected this option. I am afraid the country will pay a heavy price in terms of poor demand, lower sales, fewer jobs and closures of micro, small and medium enterprises.
Seventhly: Pitiful tax cuts. The tax cuts announced by the Finance Minister are, at best, tokenism. If you do the math, you will find that he has given 1.98 crore taxpayers a relief of, on average, Rs 5000 per taxpayer. We welcome this relief, but it is small mercy for a person who stood in a queue for many hours for many weeks in order to withdraw small amounts of money from his or her account. The correct tax cut, I reiterate, would have been a cut in indirect taxes that would have benefited many more crores of people, including industry and business, apart from boosting aggregate demand.
Eighthly: Fiscal responsibility. For the second time in four budgets/years, the government has discarded fiscal prudence and violated the FRBM Act. In 2015-16, the target of fiscal deficit (FD) should have been 3.6 per cent; instead it was kept at 3.9 per cent and the CGA/CAG have reported that it was actually 4.31 per cent. Now, again, the target for 2017-18 should have been kept at 3 per cent, but the government has set a target of 3.2 per cent. Analysts, bankers and investors, in India and abroad, will not take kindly to this disregard of fiscal responsibility.
Ninthly: A wasted opportunity. The Appendices to the budget speech contain at least 85 changes to various provisions of the Income-tax Act. No average tax payer can understand or keep up with these changes. Every change is intended to 'rectify an anomaly' or 'plug a loophole'. This process will never end. That is why it is imperative that the draft Direct Taxes Code should be updated and enacted. It is strange that the government refuses to do what is wise and right and persists in doing what is unwise and wrong.
Lastly: The GDP puzzle. What is the correct nominal GDP number for 2016-17? According to last year's budget documents, the nominal GDP for 2016-17 was estimated at Rs 150,65,010 crore. According to the CSO's press release dated January 6, 2017, the Advance Estimate is Rs 151,92,588 crore. According to the budget presented yesterday the Revised Estimate is Rs 150,75,429 crore. Which number should we believe?
Altogether, I am disappointed that the government has not used the opportunity to push through bold reforms, revive aggregate demand and growth, and devise new strategies for job creation.
(P.Chidambaram is former Finance Minister. This is his statement after the presentation of the Budget 2017)